EVALUATION OF THE INTERNAL REVENUE
SERVICE’S CAPABILITY TO ENSURE PROPER USE OF RECOVERY ACT FUNDS

Issued on November 27, 2009

Highlights

Highlights of
Report Number: 2010-41-011 to the Internal
Revenue Service Deputy Commissioner for Services and Enforcement.

IMPACT ON TAXPAYERS

The American Recovery and
Reinvestment Act of 2009 (Recovery Act) contains 56 tax provisions, 20 individual
taxpayer provisions, and 36 business taxpayer provisions. The individual taxpayer provisions will cost
nearly $252 billion and provide tax relief to working or retired Americans and
their families.The business taxpayer
provisions will cost more than $74 billion and provide several tax relief
incentives for businesses.The Internal
Revenue Service (IRS) is unable to verify eligibility for the majority of
Recovery Act benefits at the time a tax return is processed.

WHY TIGTA DID THE AUDIT

On February
17, 2009, the Recovery Act was enacted.The provisions in this law are estimated to cost a total of $787 billion
over 11 years.Federal agencies
across the country will be responsible for distributing billions of dollars of
Recovery Act funding to qualified recipients in discretionary and mandatory
programs designed to revive the ailing economy and create a more sustainable
future.

The Obama Administration has asked Federal agencies to ensure
Recovery Act funds are used for authorized purposes and every step is taken to
prevent fraud, waste, and abuse.Congress appropriated $7 million to TIGTA to provide oversight and
conduct audits of the IRS’ administration of Recovery Act programs.The objective of this review was to assess
the IRS’ ability to verify tax return data and taxpayers’ eligibility for
tax-related Recovery Act benefits and credits.

WHAT
TIGTA FOUND

The IRS uses certain methods to verify the accuracy and
eligibility of tax benefits and credits claimed on tax returns.The validation process can occur 1) before a
tax return is processed and before funds have been released or 2) after a tax
return is processed and after funds have been released.

The IRS cannot verify the accuracy of all of the legislated
requirements before the tax return has completed processing for 39 Recovery Act
provisions (13 individual provisions and 26 business provisions).To a great extent, the IRS relies on
taxpayers’ voluntary compliance with tax laws to accurately report income and
claim only those tax benefits and credits to which they are entitled.

Verifying
specific eligibility requirements for these 39 provisions would require
the IRS to request specific documentation from the taxpayer.The IRS attempts to weigh the potential
burden that requiring this documentation could place on taxpayers when
implementing provisions.In addition,
limitations of its electronic filing program prevent the IRS from transferring
supporting (paper) documentation into an electronic format.

WHAT TIGTA RECOMMENDED

TIGTA did not include recommendations in this
report.TIGTA has ongoing and planned
audits that will focus on specific Recovery Act benefits and credits and will
include recommendations as appropriate as part of these reviews.

The
IRS did not provide a written response to this report.

READ THE
FULL REPORT

To view the report, including
the scope, methodology, and full IRS response, go to: